SPEECHES & TESTIMONY

Statement of Support by Chairman Gary Gensler: Aggregation Provisions for Limits on Speculative Positions

November 5, 2013

I support the proposed rule that would modify the CFTC’s aggregation provisions for limits on speculative positions.

As we move forward on position limits for futures and swaps, it is important to concurrently implement reforms to the Commission’s current regulations regarding which positions are totaled up as being owned or controlled by a particular entity. These total, aggregated positions under common control are then subject to the speculative position limits, taking into consideration any relevant exemptions.

We live in a time when companies often have numerous affiliated entities, sometimes measured in the hundreds or thousands. Thus, it is appropriate to look at how speculative position limits apply across the enterprise. When Lehman Brothers failed, it had 3,300 legal entities within its corporate family. The question is – do you count all those 3,300 legal entities that Lehman Brothers once controlled, or do you apply a limit for each and every one of the 3,300? If we chose the second, that would be, in practice, a loophole around congressional intent. That's why this issue of aggregation comes into play.

The proposal generally provides for aggregation when various entities are under common control. For instance, if the ownership interest is greater than 50 percent, it will be presumed to be aggregated and part of the group.

The proposal provides for certain exemptions from aggregation for the following reasons:

Where sharing of information would violate or create reasonable risk of violating a federal, state or foreign jurisdiction law or regulation;

Where an ownership interest is less than 50 percent and trading is independently controlled;

Where an ownership interest is greater than 50 percent in a non-consolidated entity whose trading is independently controlled, and an applicant certifies that such entity’s positions either qualify as bona fide hedging positions or do not exceed 20 percent of any position limit; or

Where ownership of less than 50 percent results from broker-dealer activities in the normal course of business.